Iceland Leading Indicator Slower tourism growth

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1 News release no. 7/ Iceland Leading Indicator Slower tourism growth The Iceland Composite Leading Indicator (CLI) dropped in June by.3 per cent. Also, the values for March through May are revised downwards. The CLI indicates growth may be normalizing. Gross Domestic Product (GDP) may contract in Q2 on the previous quarter. Nevertheless, growth on the year may still stay above its long-term trend. Three of the six components contract on the previous month. After adjusting for seasonality and long-term trend there is a contraction on the month for both the number of tourist arrivals and consumer confidence. These constitute the largest factors contributing to the CLI drop. However, the long-term trend of some important CLI components remains strong. The main risk factors continue to include some external factors mainly in relation to the geopolitical situation. Turning points of the CLI tend to precede turning points in economic activity relative to trend by approximately six months. Economic activity is measured by Gross Domestic Product published by the Statistical Bureau of Iceland. The calculation of Analytica s CLI is based on methodology adopted by the OECD. Chart 1. GDP and Analytica s CLI Trend Adjusted Long term trend = Analytica's CLI GDP Chart 1 depicts Analytica s CLI together with trend adjusted GDP. The chart shows that the CLI leads GDP on average by around six months.

2 A gray triangle has been placed on Chart 1 for the month of March 216 indicating a CLI turning point to the downside. A brown triangle has been placed on the chart eight months later, i.e. for the month of November, indicating a GDP turning point to the downside. As seen in Chart 2 rapid growth is still forecast into 217. The forecast is based on the Iceland CLI and its components after shifting forward by six months. The purpose of Chart 2 is to put GDP in context with the leading indicator depicted on Chart 1. A turning point to the upside corresponding to the one in Chart 1 is placed in February 215. GDP growth in Q3 and Q4 was somewhat above the CLI based projection. However, the contraction in Q1 indicates adjustment towards long-term trend which remains strong. Chart 2. GDP and Analytica s forecast into year 217 ISK m per month - 25 Prices Analytica's CLI based Forecast 89 Note: GDP figures for 215, 216 and 217 are preliminary estimates by the Statistical Bureau of Iceland. The GDP figures presented in Chart 2 are based on the official quarterly estimates of the Statistical Bureau of Iceland. The quarterly GDP numbers have been distributed over individual months. The figures are seasonally adjusted and smoothed and are in amounts of thousands of million ISK at fixed 25 prices. There are six components of Analytica s CLI. These are: Fish catches, inflation adjusted debit card turnover, number of tourists visiting Iceland, the MSCI World equities index, inflation adjusted imports and the Gallup Index of Consumer Confidence. For June, three of the six underlying components contract year on year. Furthermore, three of the six components contract on the previous month. See Appendix, Charts A1 and A2. Some revisions to the index values have taken place. This is a result of component revisions and in part a result of the methodology employed, including the long-term trend estimate. GDP Q1

3 Table 1 shows the development of the CLI during the past twelve months. The value for June drops to 99.5 or by.3 per cent. This value serves as an indicator to economic activity six months into the future, i.e. December 217. A value of 1 indicates GDP in line with its long-term trend. Table 1. Analytica's CLI Change in % Indication Index on month YOY for month 216 June % 1.2% Dec. 216 July 11.2.%.8% Jan. 217 August 11.2.%.6% Feb. September 11.2.%.4% March October %.1% April November % -.4% May December % -1.% June 217 January % -1.4% July February 1..% -1.5% August March 1.1.1% -1.3% Sept. April % -1.3% Oct. May % -1.5% Nov. June % -1.7% Dec. The July Composite Leading Indicator is scheduled for release on August 18, 217. Further information is provided by Analytica s CEO, Mr. Yngvi Hardarson Tel yngvi@analytica.is

4 Iceland Composite Leading Indicator - Appendix Chart A1 - Analytica's Leading Indicator - Individual Components Per cent Change Year on Year * 1 Debit Cards 125 Consumer Cons. Confidence Fish Catches MSCI World Imports No. of Tourists Notes: * Not Trend Adjusted Debit Cards: Domestic debit card turnover, inflation adj. Fish Catches: Chain linked volume index. Imports: Inflation adjusted imports. Cons. Confidence: Gallup Index of Consumer Confidence. MSCI World: MSCI World equities index. No. of Tourists: No. of passenger arrivals at Keflavik Airport. All figures are seasonally adjusted and smoothed. Shadow on charts covers latest six months data. Sources: Gallup Iceland, Statistical Bureau of Iceland, Central Bank of Iceland, Thomson Reuters, Analytica s calculations.

5 Iceland Composite Leading Indicator - Appendix Chart A2 - Analytica's Leading Indicator - Individual Components Trend Adjusted - Trend= Debit Cards 1.5 Consumer Cons. Confidence Fish Catches 1.3 MSCI World Imports No. of Tourists Notes: Debit Cards: Domestic debit card turnover, inflation adj. Fish Catches: Chain linked volume index. Imports: Inflation adjusted imports. Cons. Confidence: Gallup Index of Consumer Confidence. MSCI World: MSCI World equities index. No. of Tourists: No. of passenger arrivals at Keflavik Airport. All figures are seasonally adjusted and smoothed. Shadow on charts covers latest six months data. Sources: Gallup Iceland, Statistical Bureau of Iceland, Central Bank of Iceland, Thomson Reuters, Analytica s calculations.

6 About Analytica Analytica provides independent and value added financial advisory services. The company specializes in treasury and risk management services provided to qualifying investors. The company's position is based on decades of experience and expertise. The CEO and founder of Analytica is Mr. Yngvi Hardarson. Mr. Hardarson was born in 196 and holds an MA degree in Economics from Queen's University of Kingston Canada, with specialization in Econometrics and Monetary Economics. In addition, he holds a certificate in international trade and resource allocation from the Yrjö Jahnsson Foundation in Helsinki, Finland and a CMT designation by the Market Technicians Association in NY. Mr. Hardarson started his career as an economist at the National Economic Institute in In 199 he became the Chief Economist at the Federation of Icelandic Industries. In 1993 he co-founded Economic Consulting and Forecasting Ltd. In 27 and until the summer of 21 Mr. Hardarson was employed as a Managing Director at Askar Capital hf. Investment Bank. In the period Mr. Hardarson also served as the editor of Gjaldeyrismál (FX-mail), a daily and subsequently weekly newsletter on FX, money markets and global economics. Further information is provided on Analytica s web page